Why do we add the present value of the CCA tax shield to the NPV?

Question

Quizplus · Accepted Answer

The CCA tax shield arises from depreciating the asset, which reduces the taxable income of the company and results in lower tax payments. This tax shield should be included in the calculation of the net present value (NPV) because it adds to the cash flows of the project. Option A is incorrect because tax shield is not a cost, but a benefit to the company. Option C is also incorrect as the interest expense does not qualify for CCA tax shield. Option D is not the correct answer as option B is the correct answer.

Why Do We Add the Present Value of the CCA